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Operations and Supply

Chain Strategies
Chapter 2
2
Chapter Objectives
Be able to:
Explain the relationship between business strategies and
functional strategies and the difference between structural
and infrastructural elements of the business.
Describe the main operations and supply chain decision
categories.
Explain the concept of customer value and calculate a value
index score.
Differentiate between order winners and qualifiers and
explain why this difference is important to developing the
operations and supply chain strategy for a firm.
Discuss the concept of trade-offs and give an example.
Define core competencies and give an example of how core
competencies in the operations and supply chain areas can be
used for competitive advantage.
Explain the importance
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stages of alignment between the operations and
Hall
2
Business Elements
Structural Infrastructural
(Tangible) (Intangible)
Buildings People
Equipment Policies
Computer systems Decision rules
Other capital assets Organizational
structure

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2
Definitions
Strategies - The mechanisms by
which businesses coordinate their
decisions regarding their structural and
infrastructural elements.

Mission Statement - Explains why


an organization exists and what is
important to the organization (its core
values) and identifies the organizations
domain.

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2
Definitions
Business Strategy - The strategy
that identifies a firms targeted
customers and sets time frames and
performance objectives for the business.
Functional Strategy - A strategy
that translates a business strategy into
specific functional areas.
Core Competency - An
organizational strength or ability that
customers find valuable and competitors
find difficult or impossible to copy.

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A Top-Down Model of
2
Strategy

Figure
2.1

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Operations and
2
Supply Chain Strategies
The operations and supply chain strategy is
a functional strategy that indicates how the
structural and infrastructural elements
within the operations and supply chain
areas will be acquired and developed to
support the overall business strategy.

What mix of structural and infrastructural elements ?


Is the mix aligned with the business strategy?
Does it support the development of core
competencies?

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2
Functional Strategy
Translates the business
strategy into functional
terms.
Assures coordination with
other areas.
Provides direction and
guidance for operations and
supply chain decisions.

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2 Interactions
Key
Finance MIS
Budgeting.
What IT solutions Human
to make it all work
Analysis.
together? Resources
Funds. Skills? Training?
# of employees?
Design Supply Chain
Sustainability. and
Quality.
Manufacturabi
Operations Marketing
What products?
lity.
Accounting What volumes?
Costs? Quality?
Performance measurement systems.
Planning and control. Delivery?

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Decisions Guided by the
2
Structural Strategy
Capacity
Amount, Type, Timing

Facilities
Services/Manufacturing, Warehouses,
Distribution hubs
Size, location, degree of specialization

Technology
Services/Manufacturing, Material handling
equipment, Transportation equipment,
Information systems
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Decisions Guided by the
2
Infrastructural Strategy
Organization
Structure, Control/reward systems, Workforce decisions
Sourcing/Purchasing
Sourcing strategies, Supplier selection, Supplier
performance measurement
Planning and Control
Forecasting, Tactical planning, Inventory management,
Production planning and control
Business Processes and Quality Management
Six Sigma, Continuous improvement, Statistical process
control
Product and service development
The developmental process, Organizational and supplier
roles
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2
Customer Value
Value Analysis - A process for
assessing the value of a product or
service.

Value Index - A measure that uses


the performance and importance scores
for various dimensions of performance
for an item or a service to calculate a
score that indicates the overall value of
an item or a service to a customer.

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Value Index
2
Determination

n
V I n Pn
i 1
Where:
V = Value index for product or service
In = Importance of dimension n
Pn = Performance with regard to dimension n

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Value Analysis:
2
Introduce new product?
Threshold score = 720

Performance Importance Score Value


Criterion (A) (B) (A x B)
Market potential 30
Unit profit margin 20
Operations compatibility 20
Competitive advantage 15
Investment requirement 10
Project risk 5
100%

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Value Analysis:
2
Introduce new product?
Threshold score = 720

Performance Importance Score Value


Criterion (A) (B) (A x B)
Market potential 30 6
Unit profit margin 20 10
Operations compatibility 20 6
Competitive advantage 15 10
Investment requirement 10 3
Project risk 5 4

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Value Analysis:
2
Introduce new product?
Threshold score = 720

Performance Importance Score Value


Criterion (A) (B) (A x B)
Market potential 30 6 180
Unit profit margin 20 10 200
Operations compatibility 20 6 120
Competitive advantage 15 10 150
Investment requirement 10 3 30
Project risk 5 4 20

Value Index = 700

Not at this time!


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2 Performance Dimensions
Four

Quality
Time
Flexibility
Cost

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2 Performance Dimensions
Four

Quality
Performance Quality The basic
operating characteristics of the product
or service.

Conformance Quality Was the product


made or the service performed to
specifications?

Reliability Quality Will a product work


for a long time without failing?
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2 Performance Dimensions
Four

Time
Delivery Speed - The ability for the
operations or supply chain function to
quickly fulfill a need once it has been
identified.

Delivery Reliability The ability to


deliver products or services when
promised.

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2 Performance Dimensions
Four

Flexibility
Mix Flexibility The ability to produce a
wide range of products or services.

Changeover Flexibility The ability to


produce a new product with minimal
delay.

Volume Flexibility The ability to


produce whatever volume the customer
needs.
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2 Performance Dimensions
Four

Cost
Labor costs

Material costs

Engineering costs

Quality-related costs

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Trade-offs among Performance
2
Dimensions
Generally very difficult to excel
at all four performance
dimensions.
Some common conflicts
Low cost versus high quality
Low cost versus flexibility
Delivery reliability versus flexibility
Conformance quality versus product
flexibility
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Order Winners and
2
Order Qualifiers
Order Winners
A performance dimension that
differentiates a companys products and
services from its competitors.

Order Qualifiers
A performance dimension on which
customers expect a minimum level of
performance to be considered.

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The Idea Behind
2
Prioritizing

Best in
Class

Minimum
Needs

Cost Quality Speed Flexibility

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Comparing Two Software
2
Development Firms

Best in
Class

Minimum
Needs

Cost Quality Speed Flexibility

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2
Measurements
Performance against
Customer needs
Business objectives or standards
Comparisons to competitors
Comparisons to best in class

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Stages of Alignment Between Supply
2
Chain
and Operations Strategies
Stage 1 Internally neutral
Minimize negative potential in the operations
and supply chain areas.
Stage 2 Externally neutral
Follow industry practice.
Stage 3 Internally supportive
Align structural and infrastructural elements
with business strategy.
Stage 4 Externally supportive
Seek to exploit core competencies.

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2Closing the Loop Between Business Strategy
and Functional Area Strategies

Figure
2.5

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Operations and Supply
Chain Strategies Case
Study
Catherines
Confectionaries

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